May 9, 2002
THE HIGH COST OF RENT CONTROL
I stayed in a beautiful rent-controlled Santa Monica apartment fifteen years
ago for a week while attending a nearby convention. Amy, the tenant, was
the widow of the founder of a national chain of men's stores. Amy lived
in Boston but vacationed in Santa Monica every year. Her rent-controlled
apartment near the ocean was so cheap she could afford to keep it unoccupied 11
months of the year. Her landlord loved her due to no maintenance and
negligible utility bills.
In San Francisco a recent study of rent control showed that 7,000 apartments
are only used on weekends. Do the math and you can see it's cheaper
than staying in a hotel. Hoarding un-needed space is a way of life.
Astonishingly, in July 2000 data from the California Department of Finance
showed 25,400 vacant rental units in a city confronting a housing crisis. This
is two and-one-half times San Francisco's projected new construction over the
next ten years. An estimated 10,000 of the units were off the market due
to punitive rent control laws.
http://www.spur.org
What for
crying out loud has happened to affordable housing? San Diego, like all
California cities with growth management plans, has a shortage of housing and
skyrocketing rents. Who is responsible? What do skyrocketing rents tell
us? What does an average rent of $1,000 per month mean? Can it be
true, as some suggest, that last year 40,000 landlords and landladies were nice
guys and gals but overnight turned greedy and suddenly are charging rapacious
rents?
Or is it possible the cumulative effect of the decisions of previous city
councils on down zonings, parking restriction, height limitations, designating
173,000 acres of land as open space and off limits to new construction,
extending the time required to get construction permits, requiring home builders
to pay over $1 million per pair to protect songbirds and butterflies is creating
a shortage of homes and apartments resulting in higher rents?
Particularly, at a time when the local economy is amongst the strongest in the
U.S. and demand for available housing at a 40 year high?
To deal with the "legacy" of previous councils, the solution being proposed
by members of the present San Diego City Council is rent control. The
biggest challenge, if rent control is adopted, will be how do you prevent
"unworthy" people from offering to pay more for rent than "worthy"
people? How do you keep from hurting 100 times more people than you can possibly
help?
The first impulse is to protect senior citizens, the least able to fend for
themselves. Rent control allows them to stay in their two and three bedroom
apartments at less than the cost of many one-bedrooms or studios. But what about
the newly weds living in one-bedroom apartments expecting a child and in need of
that two or three-bedroom apartment occupied by married seniors, a widow or
widower? The San Francisco study showed single people occupy nearly half of
the two-bedroom and three-bedroom rentals in that city. In San
Francisco, more than three-quarters of the households in rent-controlled
apartments have no children at all. With rent control there is no incentive to
free up the apartments for families with children who have more urgent space
needs.
Rising rents are not a sign of greed. The role of prices in a free market
is to tell us more money needs to be invested in housing and less for other
things, e.g., new cars. Rising rents give strong incentives for seniors to stop
hoarding space and make it available for families who have a greater need for
larger apartments. Greed has nothing to do with it, stripped of emotion,
demagoguery, and charges of profiteering; rising prices are the economic signals
that direct more investment dollars into home and apartment construction until
the crisis has passed. Rising profits are the quickest means by which to build
more apartments. Prices and profits are the indictors that tell producers
what products or services consumers are demanding most urgently.
If I walk out of my office and get run over by a truck that crushes my chest, if
the driver says he didn't intend to hurt me, it really doesn't matter much
does it? So it is with the city council. Good intentions don't matter if
you're one of 100,000 people hurt by the rent control that may help ten
thousand. Rent control only sounds great to people unable to concentrate their
minds. Once rent control is adopted its nearly impossible to get rid of. New
York's suffered for 50 years.
Exempting new construction from rent controls is being suggested so as not to
discourage new housing, at least for a while, or until a new council is elected.
That's providing you can get the people who have dedicated their lives to
preventing any more growth and development in San Diego to agree. You know,
people who constantly remind their elected officials that they and their friends
vote, whereas potential renters of new apartments aren't even likely to be
registered.
Even where new construction is exempt, because all of the existing stock of
rentals is price-controlled, a growing population must compete for the
uncontrolled fraction of the total market. This new construction fraction
typically amounts to around 1% to 2% added to the total inventory of housing
each year. This is why, after several years, you see much higher median
and average rents in rent-controlled cities than in free market cities.
The cost of rent control is high, very high! Over time young families,
lower-income people and many minorities are edged out of the city and people who
can most afford to pay increased rents wind up the ones protected.
Syndicated columnist Tom Sowell notes, "26 percent of the house-holds living in
rent-controlled apartments in San Francisco have incomes of $100,000 or more."
http://www.capmag.com/article.asp?id=1402
The city council should vote against rent control
and address the political causes of skyrocketing rents. The council should
focus on what policies will encourage the private market to build 100,000 new
home and apartments over the next three years and work to implement those
policies under "The Law of Large Numbers." Instead of decreeing 10% of
new housing be "affordable" which will bring an estimated 500 units to the
market, the efforts should be concentrated on increasing by 10% the 1,000,000
homes and apartments in the region which would add 100,000 new dwelling units to
the supply, and thereby stabilize rents and home prices.
Permission granted to
forward to others and quote with or without credit
Fred Schnaubelt
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